Mr Morrison said the proposals - which have not yet been debated by cabinet - would be considered "carefully and respectfully".

"We have not sought concessions to discriminate against students or teachers based on their sexuality, gender identity or relationship status".

Set up after last year's historic same-sex marriage vote and handed to the Government in May, the report also recommends that a school take account of the "best interests of the child as the primary consideration in its conduct".

"There is a wide variety of religious schools in Australia and ... to some school communities, cultivating an environment and ethos which conforms to their religious beliefs is of paramount importance", Fairfax Media quoted the report as saying.

However, a long-awaited review of whether religious freedoms are adequately protected in Australia has recommended that exemptions for religious schools be trimmed.

Schools in some Australian states can already reject staff if they are gay.

"To the extent, however, that certain jurisdictions including the Commonwealth do allow this type of discrimination, the panel believes the exceptions should be limited by the requirement that the discrimination be in accordance with a published policy which is grounded in the religious doctrines of the school".

Prime Minister Scott Morrison

Prime MinisterScott Morrison has indicated that his government may introduce new legislation to protect religious freedom even if the report does not include such recommendations.

Shadow Education MinisterTanya Plibersek told ABC it was a "disturbing proposition". The state's Attorney General John Quigley has said that the McGowan government is unable to consider the issue until the federal report is released.

According to Fairfax, the panel rejected the idea put forward by Australian conservatives that religious freedom was in "imminent peril".

Senator Derryn Hinch says schools that throw out gay teens or teachers should be stripped of government funding.

"We remain deeply concerned that under a Morrison government this bill will be drafted without regard to the interests of LGBTIQ people and other minorities who now bear the brunt of religious discrimination", she said.

"We do not think that children should be discriminated against", Mr Morrison told Sky.

However, the review said businesses would not be allowed to refuse customers on a religious basis and that registrars would have to conduct same-sex marriages.